Last night was one of the most beautiful we have ever seen. Dinner was followed by a concert performed by the family band. After that, we wandered outside. The moon was so full, we needed no flashlight. It shone through thin clouds, so that the earth looked like it had been covered with shimmering gauze.

And then, there was a strange apparition in the southern skies...a shooting star that would not stop shooting. A comet? What could it herald?

Today's news brings more speculation about the Fed's recent spurt of inaction. After raising rates steadily for the last two years, this week the Fed did nothing. Not knowing which hand to raise, Fed governors sat on both of them. 

Why? Do they sniff an economy in decline? Or, have they done their work well - finally bringing rates to exactly where they ought to be? 

The Fed is caught between Scylla and Charybdis...between a rock and a hard place...between one hand and the other. It could continue the fight against inflation - and risk crashing against the rocks of a recession. Or, it could turn to face the deflationary threat - and wash up on higher inflation rates.

As to the former, we see that Toll Brothers, one of the nation's biggest builders, has had to go back and revise its estimates downward for the second time. It says signed contracts for new houses are off 45% from a year ago.

We also read in the Florida press that foreclosures are up 34% in Palm Beach County.  We thought that was where rich people lived. Surely the rich aren't losing their houses.  But maybe everyone in Palm Beach isn't so rich after all. At any rate, rich or poor, they're losing their houses.

Meanwhile, over on the rocks of Charybdis, the threat of higher inflation rates looms...

But, the ship of state has yet another hard place on which it could founder.

At dinner the other night, a French historian wondered why Americans supported the Bush administration's military adventures in Iraq and Afghanistan. She judged them contrary to the country's own interests. "You are wasting your most precious resources," she told us. "Your military strength and your money...on nothing. It doesn't make sense.  Why?"

We tried to explain:

"Because America's experience with war has been rather positive for the last 100 years," we began. "The military is the one institution in the United States that people seem to trust. People believe in military solutions..."

The truth is, attitudes have little to do with serious thinking and a lot to do with the way the wind blows. In general, people don't really think, because thinking is private, hard.  It's easier for people to just rely on mass sentiments and feelings. And these develop over a long time.

Americans' faith in the righteousness of their military is an old one, only paralleled by their faith in the solidity of land and houses as investments.

"You can't go wrong with real estate," is a stock phrase in the United States. People presume that though there may be stagnation - and even isolated bear markets in housing - the general trend is always up. But, of course, it's simply not true. When our grandfather bought a house in Baltimore in the 1920s, he probably paid a price that, in real terms, was not matched for another 70 years. And people who bought farmland in western Kansas in the 1880s are still waiting to break even.

People even believe in the solidity of something as uncertain as stocks. Yes, they are aware, intellectually, that prices go up and down. But who really remembers the last genuine bear market? Who really believes that stock prices might go down for 20 years?  Who really expects a Dow of 5,000 or even 3,000?

We can barely remember it ourselves, but in 1980-82, you could take a single ounce of gold, sell it, and get enough money to buy every one of the Dow stocks. Now, you need 17 ounces. And that is after the price of gold has more than doubled.

You are probably thinking: "Well, those are simply examples of markets at work; they go up and they go down." True, dear reader, but our point is that really big moves in the market or in the military are driven by sentiment, which follows very long patterns, like the orbit of a distant comet that makes its appearance in the southern skies only once in a lifetime.

Right now, people have begun to talk about recession...about bear markets...about war.  But they don't really feel the misery of these things. It is only an abstraction. That is why they continue to buy stocks with dividend yields below two percent. It is why they are willing to buy shares in foreign companies whose names they can't pronounce, and why they happily steep themselves so far in debt that the least setback would bankrupt them. And, it is also why they still keep their savings in a faith-based currency, even though its own custodians have publicly announced they will destroy it, little by little, forever and ever.

Yes, Americans are aware that hard times come around from time to time, but they don't feel threatened by them. They can't quite imagine getting hurt themselves. If they are short money, they will always have credit cards. If they lose their jobs, well...there are always plenty of jobs in the United States. And no matter what happens, the feds will make sure that nobody suffers too much. 

But, if there is one thing we know about the sentiments of crowds, it is that they change. Today it is greed. Tomorrow it is fear. But, never is it doubt. And, when mass sentiment goes negative, people stop worrying about the return on the money and begin to be concerned about the return of their money. They want six percent dividends, not 1.9%.  They want guarantees, security, collateral...before they lend. And when they save, they want things of real, tried and true, tested value - gold, for instance - to protect their wealth. 

It has been a long time since that sort of fiery comet has come around and people have forgotten the sense of awe and dread it inspires...as if it announced the end of a world.  They can't quite imagine what that might be like. They will have to see it, again, for themselves.

It's only a matter of time.

Bill Bonner is the President of Agora Publishing.  For more on Bill Bonner, visit The Daily Reckoning.